Friday, April 10, 2015

More Great Advice for Politicians Thinking About Building a Stadium

Yesterday, I posted this important advice for elected officials who may one day even think about cutting a deal with a pro team.

Today, even more from the National Conference of State Legislators. Not exactly the first place you'd turn for good articles on sports business, but the deputy editor of Politifact wrote a fiscal paper designed for state lawmakers to make wiser choices on stadium subsidies.

His 10 tips are really, really smart.  Here's a few excerpts:

1. Ensure the project will attract out-of-towners.

If this goal isn’t achieved, studies show, new projects will simply divert existing entertainment money from restaurants, movie theaters and the like to the stadium, rather than increasing overall economic activity.

4. Choose the neighborhood carefully.

Where geography is concerned, “downtown stadiums are almost always winners, even when home to terrible teams,” says Arthur C. Nelson, director of the Metropolitan Research Center at the University of Utah. “The farther away from downtown you get, the greater the likelihood of local economic failure, even if the team does well,” he says.

5. Locate projects near mass transit.

Building a facility that will encourage event-goers to use close-by mass transit will maximize the positive impact for the surrounding neighborhood. With a sure ride home, sports fans will more likely stick around the area after the game.

6. Be wary of one-sided economic projections.

Supporters of stadium projects—including teams, business groups and government officials—often hire consultants to produce reports that estimate a project’s long-term economic impact. These typically include estimates of the direct impact of the stadium (jobs in construction and stadium operations), as well as the induced impact (money spent by visitors at the stadium or in the vicinity) and the indirect impact (money spent by stadium employees and local businesspeople as a result of new business drummed up by the stadium).

Typically, these reports offer projections that are hard to prove and easy to skew toward the rosiest of outlooks. This, combined with the propensity for stadium projects to experience cost overruns, suggests that it’s always worth taking consultants’ projections with a big grain of salt.

As the saying goes, cautions Allen Sanderson, a University of Chicago economist, “Never ask a barber if you need a haircut.”

7. Insist on keeping the parking revenues.

“You cannot let teams keep the parking revenue from the lots around the stadium,” says Murphy, who is now with the Urban Land Institute. When teams are allowed to keep it, “surface lots become the highest and best use of the land.”

8. Drive a hard bargain.

The key to a successful project “is keeping the public’s share of the cost to a minimum,” says University of South Florida economist Philip Porter. That requires hard bargaining and refusing to approve a deal until the team has some significant skin in the game.
And avoid getting sucked into bidding wars at all costs, warns Pakko of the University of Arkansas-Little Rock. They rarely produce any winners. “Sports franchises have monopoly power,” he says. “There are a limited number of teams, so cities are asked to bid against one another, whether or not having a local team is economically viable.”
And, as a bonus, University of Chicago economist Don Coursey included a list of questions for journalists (or elected officials) covering economic development projects!
  • Why does this project require public funds?
  • Why can’t it be completed using private funds?
  • Who will construct the project? Who will operate the project? Will these groups of professionals, laborers and managers come from the local population? Will the majority of their earnings stay within the local economy?
  • What assumptions are you making about the spectrum of users of your project?
  • How much revenue will be new injections into the economy, as opposed to simple, zero-sum movements of money within the economy?
  • How much of a primary draw will your project generate? If the project is just one of the many things that people might use or visit within a region, how are you accounting for this in your measurement of visitor revenue for your project?
  • How much economic activity will the project promote indirectly? Who computed the “multiplier”—the amount of additional projected economic activity from every dollar spent directly on the project in question?
  • Why is your project the best use of public funds? How does the impact of your study compare to alternative uses of the same funds?
  • How do you expect the economy to be affected if the project is not funded and built?
  • How will you address whether the project has met the community’s and your goals? Have funds been set aside to support a subsequent analysis of its actual impact?
Now, if we could only get elected officials to pay attention to articles like this...


  1. And when looking to build a replacement stadium, double down on all of this due diligence! See

  2. I am always skeptical of multiplier effects’ inclusion in benefit-cost analysis. Their legitimacy as benefits is often dubious. If multipliers are included on the benefit side for the project but not on the cost side, then this biases the math, even if the multipliers are legitimate benefits. State government officials should keep handy a list of multipliers for readily available alternatives to a stadium project. Some suggestions to have at hand:
    • What would be the multiplier effect of using the money to increase the standard deduction on state income taxes, thus increasing consumption in the state?
    • What would be the multiplier effect of reducing the sales tax rate to generate the same amount of savings to consumers?
    • What would be the multiplier effect of increasing state aid to primary-secondary education?
    • What would be the multiplier effect of targeted infrastructure investment around the city for the general benefit of commercial centers or residential neighborhoods? Have a list of projects with high impacts – pull them off the capital spending plan. Take them from other local Chamber of Commerce requests.
    • What would be the impact of reducing business taxes in general or property taxes in general?
    In short, identify the alternatives with the highest benefits and be ready to point to those alternative needs.

    Glenn Cassidy
    Visiting Assistant Professor of Economics
    University of Illinois at Springfield

  3. It would be fantastic if the City Council of St. Petersburg could have 5 economic impact analyses to review regarding the effect of the Tampa Bay Rays. In the era of big data, there has to be a way to create an average of economic models to reasonably estimate the overall ROI on the city's existing stadium.

    To negotiate with the Rays right now (with zero information) is to do so with both eyes closed.

    Please help us avoid being fleeced like Miami-Dade County, FL and Cobb County, GA.

    Who would the City engage? And how much would each study cost?

  4. Very interesting questions and topics that make a lot of sense. Not only in sports, but also for other type of public investments/expenses.

  5. Glenn Cassidy
    Visiting Assistant Professor of Economics
    University of Illinois at Springfield

    Hi Glenn,

    Please read